Background on Financial Success

Achieving financial stability at a young age often stems from intentional decisions and, in my case, certain privileges. My mother, an I.T. professional, was the primary earner for our family of five. She instilled in me the importance of paying off credit card debt and investing in the stock market. However, I later discovered that she struggled with significant credit card debt herself and did not contribute much to her retirement savings.

Witnessing her long hours—often 60 to 70 a week—at her desk fueled my determination to manage my finances more effectively. Although my career did not immediately take off after college, consistent and strategic actions allowed me to earn a six-figure income, maximize my retirement contributions, and purchase a home in Seattle before turning 30.

My journey in personal finance truly began when I moved into college housing. By keeping expenses low with roommates, learning to cook, and shopping second-hand, I avoided the financial traps many students face. Not owning a car for two years further helped me save money.

My interest in investing was sparked by a friendship with a PhD student who supported her family on a modest stipend while still investing in her Roth IRA. She emphasized the S&P 500 index, which led me to explore investing further through articles and books, such as "Investing for Dummies."

While I made mistakes—like panic-selling a share of Netflix during a dip—these experiences built my confidence and knowledge. After graduation, I sought careers with higher salaries, aligning my goals with the FIRE movement that is gaining traction among Millennials.

Fast forward nearly a decade, and my net worth significantly exceeds the average for my age group in the U.S., putting me on track to achieve financial independence before 40.

In summary, my financial success can be attributed to several factors:

• Acknowledging the privileges I possess.
• Graduating with no student debt due to scholarships and family support.
• Diligently budgeting and living with roommates.
• Committing to cooking, public transport, and thrift shopping.
• Paying bills in full and starting my Roth IRA at 20.
• Transitioning into a software development career with minimal investment.
• Earning a lucrative salary and maximizing 401(k) contributions.
• Purchasing a home with a low down payment and favorable interest rate.

This guide consolidates key financial advice I've gathered over the years, intended to help others achieve similar success.

Start Your Financial Journey Here

Before making significant financial decisions, I recommend utilizing the Personal Income Spending Flowchart from r/personalfinance. This chart outlines essential phases in your financial journey, offering strategies for budgeting, building an emergency fund, managing debt, and saving for retirement.

Consider the following steps only after progressing through the flowchart:

1. Budget and reduce expenses, setting realistic goals.
2. Establish an emergency fund.
3. Take advantage of employer-sponsored matching funds.
4. Pay down high/moderate interest debt.
5. Begin saving for retirement through an IRA.
6. Increase retirement savings and prepare for other financial goals.

Step 0: Budgeting and Expense Reduction

The cornerstone of saving money is understanding and controlling your expenses. Start by creating a budget—utilize budgeting apps or ready-made templates to simplify data entry.

Identify easy areas to cut costs:

• Dining out expenses.
• Subscription services that accumulate.
• Shopping, alcohol, and other discretionary spending.

Awareness empowers you to make effective changes. I maintain seven years' worth of income and expenditure data to track my financial behavior, which has helped me achieve my ambitious savings and investment targets.

Step 1: Building an Emergency Fund

As you increase savings, it's crucial to set aside three to six months' worth of living expenses in cash. Create this fund gradually, choosing a high-interest savings account with competitive APY. Once you reach six months' worth of expenses, consider moving on to more advanced investing strategies.

Step 2: Maximizing Employer Matching Funds

Once your emergency fund is established, focus on maximizing employer contributions to your 401(k). This offers two benefits:

• Contributions lower your taxable income.
• The employer match provides additional tax-free income.

Utilizing these tax-advantaged accounts is essential for minimizing your tax burden while building wealth.

Step 3: Tackling High-Interest Debt

Credit cards and payday loans often carry high interest rates. Aim to pay off credit card balances in full each month to avoid excessive fees. If you have multiple high-interest debts, consider consolidating them for better rates.

Step 4: Saving for Retirement and Education

After managing high-interest debts, start saving in a Roth or Traditional IRA. These tax-advantaged accounts allow for strategic investment of your take-home income, with potential tax breaks depending on your financial situation. While your 401(k) is typically managed by your employer, you have more control over your IRA investments.

When my PhD friend advised investing in the S&P 500, she meant using a mutual fund or ETF that tracks this index, such as Vanguard funds. Avoid panic selling; it's normal for markets to fluctuate. Regularly reviewing your investments can help mitigate stress and impulsive decisions.

Step 5: Increasing Retirement Contributions

Once you’ve maximized your 401(k) match, aim to allocate 15% of your salary to your retirement account.

Step 6: Saving for Future Goals

If you're financially stable enough to invest further, max out your 401(k) contributions and consider contributing to your IRA. Explore options like the Mega Backdoor Roth IRA if available, and utilize a Health Savings Account (HSA) if you're enrolled in a high-deductible health plan.

Diversifying your investments is crucial. Assess whether your retirement funds adjust their asset allocation as you age, and consider a mix of stocks, bonds, real estate, and personal ventures to reduce risk.

Building Your Credit

Begin establishing credit now. Higher credit scores lead to better loan terms and interest rates. Credit scores depend on several factors, including the length of your credit history and current credit utilization.

Many college students find Discover to be a practical credit card for starting their credit journey.

Maximize Employer Benefits

I've been employed full-time for five years and remain surprised by how many people overlook employer perks. Don't forget to utilize:

• Employer matching for retirement contributions.
• Wellness benefits.
• Reimbursements for commuting or home office equipment.

Check with your HR department to discover all available perks.

Understanding FIRE

The FIRE movement is not just an investment strategy; it's a way of life aimed at drastically reducing expenses to accumulate enough savings for financial independence. The goal is to have enough "f**k you money" to free yourself from financial necessity.

I've learned so much from the FIRE community about financial practices and calculated my independence number based on various factors. The common guideline is to aim for a spending rate of 4% or less of your total investments.

While many equate FIRE with retirement, not everyone wants to stop working. Financial independence means no longer working due to financial constraints.

Concluding Part 1

In this section, we've outlined essential steps for establishing financial health, including expense management, employer benefits, and investment strategies. We also differentiated between stocks and funds, emphasizing the importance of a diversified portfolio.

Maximizing your employer benefits and improving your financial situation often requires job changes, which we'll discuss in the next chapter, focusing on interviews, negotiations, and job offer analysis.

If you found this guide helpful, please follow my updates for more insights!

For further reading, check out:

• My journey into software engineering for under $200.
• The study plan that led to multiple FAANG job offers.
• Tips for junior developers and effective networking strategies.

Stay connected via Twitter or LinkedIn.

The first video provides valuable insights into the fundamentals of saving and investing for young adults, guiding viewers toward making informed financial choices.

The second video explores key lessons from reading numerous books on investing, offering actionable advice on building wealth.